Crafting an Effective Intermodal Utilization Strategy

Back in the 90s, I had the privilege of leading Canada’s largest Intermodal Marketing Company. Since that time, I have been a big supporter of this service. In our consulting work with shippers, we are often struck by the fact that this service remains undervalued and underutilized. The purpose of this blog is to challenge shippers to revisit and rethink their company’s intermodal activity and help them craft an effective plan within their supply chain strategy.

While intermodal service provides various benefits, the top advantage is that on longer lengths of haul (i.e. over 1000 miles), it typically costs less than over the road truckload service. While transit times are longer in some (but not all) instances, the economies of moving multiple containers on an intermodal train usually provide shippers with a cost advantage. When compared to truck transport, lower fuel surcharges and less exposure to driver shortages are also beneficial.

Over the past decade, all of the class 1 railroads in North America have invested heavily in their Intermodal terminal network and service offerings. As an example, a few years ago, CN Rail built a rail facility in Prince Rupert, British Columbia, the closest North American port to Asia. That port allows for the movement of intermodal containers on a single-line CN train from Prince Rupert across Canada or through Chicago as far south as New Orleans, LA. Here are a few steps to consider in preparing an effective intermodal strategy.

Step 1 – Revisit your vendor and customer service requirements

Every shipper should revisit their inbound and outbound supply chains, as a minimum, on an annual basis. Using a map that displays vendor and customer locations, and annual freight volumes, each shipper should make a determination as to where Intermodal service can fit within their business. Start with all moves that are 500 miles or more in length. In our discussions with customers, the most frequently mentioned impediment to increased Intermodal utilization is service consistency or transit times. This should trigger a set of questions.

If inbound products are going into inventory, why is intermodal service not viable? If the products are needed on a timely basis, can orders be placed earlier? Similarly on the customer delivery side, when was the last time Sales spoke to customers about delivery cycles? Would it make business sense to send full truckloads of product via Intermodal service to a DC in the customer’s area? Can some customers place their orders earlier or place larger orders so full container intermodal service can be provided? Don’t overlook opportunities to create round trips, where possible.

In Canada, intermodal LTL service is very well accepted to and from Central Canada and Western Canada and Atlantic Canada. Make sure you evaluate both less than truckload and truckload conversion opportunities. As part of this exercise, push back and challenge the responses you receive from the naysayers. The deliverable out of this task should be a grid that displays potential intermodal/over the road trade-offs.

Step 2 – Perform Due Diligence

Search out and interview the intermodal service providers in your area. If there aren’t too many in your area, do a Google search. Invite them to meet with you, preferably in person, explain the evaluation you are performing and ask them to provide an overview of the services that they provide. Query them on whether they have their own assets (containers and chassis) or not. IMCs with assets should receive priority. Ask them to supply you with transit times and rates on all of the lanes in your grid. If you are conducting an annual bid, ask for IMCs, LTL and truckload carriers to submit quotes on multiple services (if they offer more than one). This will allow you to draw meaningful comparisons on rates and transit times.

Step 3 - Understand where Intermodal Service Fits Best

Armed with this data, you are able to go back to Sales or Purchasing and present them with the potential cost savings of making a switch. When we perform this process for our clients and present the data to their leadership team, they are often surprised by the potential savings. This serves as a strong motivator for them to challenge their management teams to improve their bottom lines.

Step 4 – Create and Implement your Intermodal Negotiating Strategy

Use your shipping data and the IMC overviews to lever your volumes as effectively as possible. To get an IMC’s attention, you need to present them with significant load volumes. They won’t get to excited if you only have onesies or twosies to offer. Any time you make a change, run a trial. You will need to prove that the IMC can supply the promised service levels. You will also need buy-in from the vendor or customer. Often they will be waiting for the service provider to fail. Before making a full conversion, monitor pick-up and delivery performance and transit times. When you see the consistency and your customers are happy, you are then ready to make the switch.

Step 5 – Plan Ahead

As you progress through this exercise, you will learn the jargon and business of Intermodal service and become familiar with drayage, asset versus non-asset based providers, chassis etc. This should stimulate thought about how your business could possibly change or evolve in the future. Think about where the closest intermodal terminals are located. Think about whether or not your company is planning to consolidate factories or warehouses and where these are located vis-à-vis intermodal facilities. In other words, as you progress with your utilization and familiarity with the service, you can begin thinking about how intermodal service can be an even more pivotal part of your supply chain strategy. Perform this exercise annually to ensure you optimize on where intermodal services (and other services) fit best within your company.

In you need help in performing this type of assessment, contact dan@dantranscon.com. To stay up to date on Best Practices in Freight Management, follow me on Twitter @DanGoodwill, join the Freight Management Best Practices group on LinkedIn and subscribe to Dan’s Transportation Newspaper (http://paper.li/DanGoodwill/1342211466).